Bershidsky on Europe: Russia Sues EU
Here's today's look at some of the top stories on markets and politics in Europe:
Russia files first WTO suit against EU
Russia's first suit under the rules of the World Trade Organization, which the country joined last year, is against the EU, for unfair anti-dumping practices. The EU increases import tariffs for Russian chemical products and steel pipes, because it believes the producers' energy costs are subsidized. Russia considers this unjustified, saying that energy is simply more abundant and therefore cheaper than in Europe. That isn't strictly true: The prices charged by Russia's energy monopoly are state-regulated. The suit, however, is probably a political move. Russia has just been involved in a diplomatic scandal with the Netherlands, and EU officials have accused it of putting pressure on Ukraine to stop it from signing a trade deal with Brussels. The Kremlin is fighting back to prove no one can mess with it.
Italy passes tax-heavy 2014 budget
Italian Prime Minister Enrico Letta promises a new coalition agreement for his government in January that will allow him to fix the tax system and obsolete labor and immigration laws. So far, however, Italy has got a budget that promises little in the way of improvement. It includes a net tax increase of $2.73 billion despite the fact that low interest rates have reduced Italy's borrowing costs by about $8.2 billion for next year. Despite what looks like the final defeat of center-right heavyweight Silvio Berlusconi, the unwieldy Italian political system still appears paralyzed and unable to deliver the change needed for the country's return to economic growth. That may have to wait until one of the parties – possibly Letta's own Democratc Party, but under the leadership of Florence Mayor Matteo Renzi – wins an outright victory in a parliamentary election.
Rolls-Royce under investigation for bribery
The U.K.'s Serious Fraud Office is investigating aircraft engine maker Rolls-Royce's allegedly corrupt dealings in China and Indonesia. The Indonesian case dates back to 1990 and allegedly involves a $20 million bribe and a blue Rolls-Royce car for former dictator Suharto's son, Tony, to facilitate the sale of 700 engines to Garuda airline. Tony Suharto denies receiving the bribe. The Chinese case is more recent and involves using a local intermediary, now jailed by the Chinese authorities, to secure orders from two airlines. While corruption is reprehensible, digging up 20-year-old cases looks desperate, especially in the context of the Serious Fraud Office's recent performance: only nine people prosecuted in 2013 and just 10 search orders issued. The U.K. must be the cleanest country on earth if this is the scope of serious corruption investigations. The SFO is about to have its budget cut, and it needs a high profile case. Rolls-Royce should brace for a few unpleasant months.
Brazilian bank moves into commodity trading as others leave
Brazilian bank BTG Pactual, run by billionaire Anre Esteves, is planning a big move into the commodities business. It is planning to double the staff in its London office by the end of next year, increasing it by 100 people, and to set up trading operations in Sao Paulo, Stamford in the U.S., Singapore and Geneva, Switzerland. This is a contrarian move just as major players, such as JP Morgan Chase, Goldman Sachs, Barclays, Morgan Stanley and, most recently, Deutche Bank have scaled back their commodities trading. The operations have provided low returns, and regulators in the U.S. are looking to restrict banks' ownership of physical commodities, so the big banks see the line of business as more trouble than it is worth. The returns, however, may well rise as competition slackens, and the void left by giants will be quickly filled by ambitious newcomers.
Rifle designer Kalashnikov dead at 94
One of the most famous Russians, Mikhail Kalashnikov, the inventor of the AK-47 assault rifle, died in Izhevsk in the Ural Mountains. He was 94, and he died proud of the weapons he invented. "I did not invent them to kill people but to defend my Fatherland," he said in an interview. "I lose no sleep. That's for politicians who start wars, and the designer is not to blame." Kalashnikov was the last of a generation of Soviet engineers who did not seek, or get, any financial reward: Though his assault rifle is the most widespread in the world, he was not paid a royalty on its production. He was, however, venerated in his hometown and is now mourned by generals and ministers. Few Russian inventions have taken off globally in the last 20 years, and Kalashnikov's death is a poignant reminder of the fact that the Soviet system, in its own way, did more to stimulate innovation than the current one – even if the innovation's purpose was grim.
(Leonid Bershidsky can be reached at email@example.com).